Feb. 21 (Bloomberg) -- New Jersey Governor Chris Christie
proposed a $32.1 billion spending plan, the biggest in five
years, that counts on tax revenue increasing the most since
before the recession began.

The budget, which is $2.4 billion more than the plan
enacted last year, would reduce income and business taxes while
making a $1.1 billion pension payment, the highest in state
history. It would increase school aid by $213 million and cut
funding for distressed cities.

“Today, we will both maintain our fiscal discipline, and
drive New Jersey into a new era of growth,” Christie said in a
speech to lawmakers. “Today, it is time to put the New Jersey
comeback into high gear.”

Christie, a 49-year-old first-term Republican, is calling
for a 10 percent income-tax cut over three years. He predicts
state revenue will rise 7.3 percent in fiscal 2013, which begins
July 1. He has said his tax cuts, which will cost more than $500
million next fiscal year, will spur the economy.

Democrats, who control the Legislature, say Christie’s
income-tax cut proposal favors the wealthy and that he should
focus on easing the property-tax burden. Christie has accused
Democrats of ignoring taxes and job creation while spending the
past month on a gay-marriage bill that he vetoed Feb. 18.

Slow Recovery

Rising pension costs and a slow recovery from the longest
recession since World War II led Standard & Poor’s, Moody’s
Investors Service and Fitch Ratings to lower New Jersey’s credit
grade last year. While revenue in the first half of this fiscal
year rose 3 percent compared with the same period of 2010, it
was $326 million less than targets.

New Jersey’s revenue dropped 11.3 percent in fiscal 2009 as
the economy slumped. It fell 3.5 percent the next year, before
rising 2.9 percent in 2011, and is projected to rise 3.5 percent
this fiscal year. The governor stressed that spending for 2013
remains below fiscal 2008 levels.

“We also have avoided overly optimistic assumptions about
revenue,” Christie said. “These will only get us in trouble in
the future.”

The $29.7 billion budget Christie signed last year has
increased to $31 billion as the administration supplemented
spending, in part because the Legislature underfunded some
areas, Treasurer Andrew Sidamon-Eristoff told reporters. The
plan for fiscal 2013 is 3.7 percent above that figure, he said.

Pension Contribution

Christie’s fiscal 2012 budget funds only 14 percent of the
pension payment recommended by actuaries, Fitch said in a Jan.
31 report. Demands will rise if the state misses its 8.25
percent assumed return on investments, the company said.

The pension funds, with $67.2 billion of assets, returned
1.7 percent last year. They have an annualized 10-year return of
5.1 percent, according to treasury reports last month.

The state’s estimated pension-funding deficit fell to $36.3
billion from $53.9 billion after Christie signed bills in June
that raised pension and health-care expenses, increased the
minimum retirement age for new employees to 65 from 62 and froze
cost-of-living increases. The gap then swelled $5.5 billion to
$41.8 billion for the 12 months through June after Christie
skipped a pension payment.

A 2010 law required the state to phase in full payments
over seven years after a decade of lapsed funding. Christie this
year budgeted $484 million for a payment. Actuaries recommended
the state put in $3 billion.

‘Financial Future’

The liability will continue to grow because of the failure
to make full contributions until fiscal 2018, Fitch said. The
company rates New Jersey’s general-obligation debt AA-, its
fourth-highest grade.

The pension payment represents 3.42 percent of the total
budget this year, Christie said in his speech.

“My proposal of $1.1 billion for pensioners in this state
reinforces my commitment to the security and financial future of
all public workers,” he said. “Stand with me on this
commitment. Let us live up to our word.”

Christie said last month that he wanted to boost funding to
“shortchanged” middle-class schools. He said his budget would
redirect allocations that now send 63 percent of funding to the
31 poorest districts. The state’s highest court last year
ordered Christie to increase aid to those systems, known as
Abbott districts.

School Plan

New Jersey spends about a third of its budget on public
schools, averaging $17,700 a year for each student, and yet
100,000 children are trapped in failing institutions, Christie
has said. He has proposed changes to tenure, linking teacher pay
to performance and allowing privately funded vouchers for
students in poor families.

Christie proposed school aid of $8.8 billion in his budget,
which he said is a “record level of investment” by the state.

“The opportunity to get a great education should not be a
function of the zip code you live in -- it should be a hallmark
of growing up in New Jersey,” Christie said.

Even with the 10 percent income-tax cut, rates in many
brackets will be higher than those in New York, Connecticut and
Pennsylvania, he said.

“We need to reverse our competitive disadvantage,”
Christie said. “In the mid-Atlantic region, New Jersey needs to
be the best home for growth.”

Democrats say a family with a $50,000 annual income would
pay $80 less in taxes under Christie’s plan, while someone
earning $1 million would save $7,200.

While 52 percent of registered voters support the income-tax cut, 76 percent would prefer reducing property taxes first,
according to a Rutgers-Eagleton poll released today. New
Jersey’s property taxes, the highest in the nation, rose 2.4
percent on average to $7,759 in 2011, according to state data.

Voters overestimate how much money they would receive from
Christie’s tax cut, the poll found. Thirty-five percent think a
10 percent tax cut would save them more than $500, while a
household would have to earn more than $150,000 to save that
much. Only 14 percent of voters report incomes over $150,000.